Eurozone manufacturing sector shrinks

The eurozone’s manufacturing industry contracted in August for the first time in two years, increasing fears about the state of the 17-country region’s economic recovery.

Figures released today (23 August) indicate that the manufacturing sector in Germany was at its second weakest in 23 months, with all but zero growth in the services sectors.

The situation was not much brighter in France, where manufacturing growth fell for the first time since June 2009.

The widely respected Markit purchasing managers’ index (PMI) showed manufacturing at 49.7 in August, a 23-month low and down from 50.4 in July. Any reading below 50 indicates a contraction.

The PMI in the services sector also fell to a 23-month low: 51.5 in August compared with 51.6 in July.

Chris Williamson, the chief economist at Markit, said it was clear that in the past few months the eurozone economy had seen its weakest expansion for two years.

He said: “The data raise the prospect that economic growth in the third quarter could be even slower than the disappointing 0.2% rise seen in the three months to June.

“Most worrying is the near-stagnation in Germany, which suggests that the region’s main engine of growth has stalled.”

He said that a number of factors had had a negative effect on growth, including a downturn in global demand. He said that this had caused exports of goods to fall at the fastest rate for more than two years.

This added to “growing concerns about the economic outlook and the euro area’s financial crisis, which caused business confidence to plunge,” he said.

“Most notable was a record fall in business confidence in the German service sector,” he added.

The study found that the ratio of manufacturing new orders to inventories, which acts as a guide to near-term output developments, fell for the sixth month in a row, to its lowest since April 2009.